A three-member larger appellate bench of the Securities and Exchange Commission of Pakistan (SECP) has endorsed the impugned order issued by Commissioner (SMD), SECP against a company and dismissed the appeal filed by the said company.
Two Commissioners gave their views in favour of the SECP department and one Commissioner ordered in favour of the company. The interesting aspect of the order of the SECP larger appellate bench is that the two Commissioners (members of the bench) gave entirely different viewpoints as compared to the third Commissioner (third member of the bench).
Out of three-member bench of the SECP appellate bench, two Commissioners of the bench declared that, "In the light of above discussions and findings, we are of the view that the appellant has failed to demonstrate any concrete defense against the impugned order, therefore, we hereby dismiss this appeal, without any order as to cost.
On the other hand, one member of the larger appellate bench observed that, "In view of the above discussions, I hereby accept this appeal and set aside the impugned order, without any order as to cost.
The final decision of the appeal revealed that, "The appeal is dismissed with the majority view of two to one."
The three-member bench of the SECP Appellate Bench has issued an order (dated December 20, 2019) to dispose of Appeal No. 9 of 2018 filed by Bilal Aurangzeb Noor (Appellant) in the matter of Drekkar Kingsway Limited (the Company) against the Order dated December 8, 2017 (the Impugned Order) passed by the Commissioner, SMD, (Respondent) under Section 26 read with section 25 of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (Takeovers Ordinance) and Regulation 24 of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2008.
The appeal was initially heard by a two-member Appellate Bench on March 12, 2019. The Bench consisted of Shaukat Hussain, Commissioner and Aamir Ali Khan, Commissioner. Both commissioners were divided in their opinions with regard to the decision of this appeal therefore, on
August 23, 2019, the Registrar Appellate Bench referred the matter under Rule 16, sub-rule 6 to the Chairman, Securities and Exchange Commission of Pakistan (The Chairman) for constitution of a larger bench in order to decide the instant appeal. The chairman constituted a larger bench consisting of the two Commissioners who had already heard the matter and Tahir Mahmood, Commissioner. Hearing of the larger bench was held on September 19, 2019 however, Appellant's Counsel (Counsel) sought adjournment.
Meanwhile, due to retirement of Tahir Mahmood, Commissioner, the bench was dissolved. Thereafter, the Registrar Appellate Bench once again referred the matter under Rule 16, sub-rule 6 to the Chairman for constitution of a larger bench. The Chairman constituted a larger bench consisting of the two Commissioners who had initially heard the matter and Farrukh H Sabzwari, Commissioner. Thereafter, the appeal was re-fixed and heard by the larger appellate bench on November 5, 2019.
Brief facts of the case are that the Company was on the defaulter counter of the Pakistan Stock Exchange Limited (the PSX) and trading of its shares was suspended, since March 22, 2012. On December 9, 2014, the Company was moved to the normal counter of the PSX, opening price of the Company's share was Rs. 1.13 whereas, the closing price of was recorded at Rs. 2.1 with nil volume. However, by December 16, 2014, the Company's share price had witnessed a sharp increase to Rs. 12.24, which represented a 983.18 percent rise, with a cumulative trading volume of 29,000 shares in 13 trading sessions.
During the period December 9, 2014 to December 16, 2014, large buy orders were placed by M/s. Noor Capital (Pvt.) Limited (Noor Capital).
ln view of the above circumstances and facts, the Securities and Exchange Commission of Pakistan (the Commission), in exercise of powers conferred under Section 139 read with Section 137 of the Securities Act, 2015 (Securities Act), ordered an investigation vide order dated October 9, 2015 (the Investigation), to enquire into the dealing, business and other transactions pertaining to the shares of the company, during the period from June 30, 2013 to February 12, 2015.
The Appellant has challenged the Impugned Order inter alia on the grounds that the Investigation, into the affairs of the Company was commenced on October 9, 2015 under Section 139, read with Section 13 7 of the Securities Act and eventually, a SCN was issued for the alleged violation of Section 5 of the Takeovers Ordinance on June 5, 2017. At this point, the Counsel emphasized that the Takeovers Ordinance was repealed by Section 178(1) of the Securities Act on May 13, 2015, therefore, issuance of a SCN under the repealed law was void. Furthermore, the Appellant states that the investigation under Section 139 of the Securities Act could only be initiated against the violations of the Securities Act, therefore, the investigation with respect to violations of Takeovers Ordinance was illegal.
The Commissioner (SMD), SECP, ie, the respondent's representatives (the representatives) have vehemently denied and rebutted the grounds of appeal and arguments of the counsel. The representatives stated that the Impugned Order had been passed in accordance with law, and the Respondent had followed and implemented the permissible procedure and method of adjudication while dealing with this matter. It is a matter of record that the Takeovers Ordinance was repealed vide Section 178(1) of the Securities Act.
However, Section 6 of the GC Act saves rights created and liabilities incurred on account of a statute that has been repealed therefore, the appellant was rightly penalized under the Takeovers Ordinance. The representatives further argued that investigation under Section 139 read with Section and 13 7 of the Securities Act was not initiated on account of Takeovers Ordinance violations, rather it was initiated to probe the trading activities in the shares of the company.
The unanimous view of the larger bench SECP revealed that we have heard the parties (Appellant & Respondent) and perused the record with their able assistance. The Counsel's argument that the Respondent had wrongly invoked the provisions of Takeovers Ordinance is not tenable because the alleged violation pertains to the period December, 2014 to January, 2015 and at that time Takeovers Ordinance was in operation. It is very important to understand that a violation always leads towards a liability and liability resulting in penalty.
Therefore, by virtue of Section 6, clause "c" of GC Act, the Respondent had rightly proceeded against the appellant and others under the repealed Takeovers Ordinance. The larger bench has noted that instead of mentioning clause "c" of Section 6 of the GC Act, the respondent had referred to clause "e", however, it is an inadvertent and immaterial mistake that has not affected the rights of the appellant and merits of the case. In the circumstances, the respondent was duly authorized to proceed under the repealed Takeovers Ordinance.
The takeover and acquisition provisions of Securities Act are not applicable to the Appellant's case because, its provisions have enhanced the quantum of penalty and threshold of acquisition of voting shares. Furthermore, requirements of Section 5 of the Takeovers Ordinance were violated prior to its repeal however, such violations were revealed after its repeal. Article 12( 1 )(b) of the Constitution prohibits imposition of a penalty, of a kind different from the penalty prescribed at the time the offence was committed, therefore, the Respondent was not authorized to impose a penalty or any other condition, which was nonexistent at the time violations were committed, the bench said.
"We are of the view that the Respondent had observed the required legal procedure, therefore, issuance of SCN and passing of Impugned Order do not suffer any irregularity or illegality. The Larger Bench
is not inclined to support the Appellant's assertion that violations of the Takeovers Ordinance were investigated under Section 139 read with Section 13 7 of the Securities Act.
As a matter of fact, the investigation order, dated October 9, 2015 was not issued to investigate the alleged violations of Takeovers Ordinance, rather investigation was ordered to probe into the trading activities in the Company's shares during the period from June 30, 2013 to February 12, 2015.
However, the investigation revealed that the Appellant along with others while acting in conceit had acquired 35 percent voting shares of the Company, hence, violated the requirement of Section 5 of the Takeovers Ordinance. Takeovers Ordinance violations were exposed during the Investigation, therefore, enquiry under Section 21 of the Takeovers Ordinance was not necessary or required.
Copyright Business Recorder, 2019